Colombia and Brazil: Elimination of double taxation

On August 5, Colombia signed the agreement to eliminate double taxation with Brazil as an additional effort to make Colombia a more competitive country globally.

The agreement must complete the ratification process in both countries before it can enter into force, so it is not currently in force.

The signing of this agreement represents, more than the relationship between two countries, the inclusion of instruments of a special nature whose primary purpose is to avoid the tax overload that may be generated when there is competition over the same taxable event in the field of international operations.

In Colombia, where structural regulatory changes are introduced concurrently thanks to the tax reforms we have adopted, having an instrument such as this one is positive since double taxation treaties are part of a special category in which they prevail over domestic law and are not subject to excessive changes over time, providing taxpayers with legal certainty as to the applicable tax rules.

The Convention will apply to tax residents in one or both countries and provides that the conclusion of the Convention will not affect the taxation that may be imposed by one or both of the Contracting States on their corresponding tax residents.

On the other hand, the agreement will include income tax and complementary taxes, excluding in this article what is related to taxes on capital or wealth, as well as taxes owned by territorial entities such as the ICA.

In short, the Convention mentioned that it would cover any tax of identical or similar nature implemented by the contracting countries after the date of signature of the Convention.

The Convention referred to the taxation of royalties, including limits or ceilings on withholding rates of 15% in the case of royalties derived from the use or right to use trademarks and 10% for all other cases.

The above, with the particularity that in the section that defines the term royalties, fees for technical services, technical assistance, and consulting are not included.

However, in the case of fees for technical services, the agreement has included them in another independent article, which introduces a broad definition of fees for services, in which these concepts and management services are understood to be included.

The article establishes that fees for technical services originating in a Contracting State and paid to a resident of the other Contracting State may be subject to taxation in that other Contracting State, establishing that if the beneficial owner of the fees is a tax resident of the other Contracting State, the tax required will be limited to 10%, without prejudice to the provisions of Articles 8, 15, 17, and 18 of the Convention.

With information from Asuntos Legales